There are more than a dozen Costco stores in Orange County — including in Fountain Valley, Fullerton, Garden Grove, Irvine, Laguna Niguel, San Juan Capistrano and Tustin — and none have active sales-tax sharing agreements with those cities.
The new Costco planned for Lake Forest won’t require a tax-sharing deal either.
For Brea, however, a Costco is feasible only through such an arrangement, officials said. It gives the developer who bought the land — and landed the Costco lease — the lion’s share of sales taxes generated by the big box store over an unusually long 50-year term.
What’s the difference? Costco paid a reported $12 million for the Lake Forest land. Developer Dwight Manley paid a reported $140 million for the Brea land, a bit more than half of which will be devoted to the Costco.
Whether the agreement is a good deal or a dog has been a matter of debate. Municipal finance experts are unimpressed, with one calling it a “bad bet by any measure.” Supporters say it will give Brea the Costco it has longed for and pump millions of sales tax dollars into city coffers.
Jeff Ball, CEO and President of the Orange County Business Council, called it a win. Comparing sites is difficult, he said; there are myriad factors unique to each location, from zoning to retail competition to the cost of the land itself — and all impact what makes a project work.
“At the end of the day, the city’s getting a strong developer with a powerful tenant that is proven and is going to bring considerable benefit to the city,” Ball said.
Mark Strom, a Brea resident who opposes the deal, heartily disagrees. The land was expensive because there were multiple interested buyers who saw a higher and better use for the property, he said.
“The city and Manley are trying to put a square peg in a round hole and are asking taxpayers to make up the extra cost to Manley. If he wanted to put a Costco on Balboa Island, should they give him $2 billion because his economics don’t work? It’s nutty,” Strom said.
The tax sharing agreement that Brea’s city council inked with Manley in December will put the Costco on a portion of the Beckman Coulter campus on South Kraemer Street. The developer gets the overwhelming majority of sales taxes in the early decades, while the city won’t see much of its slice for about 30 years.
The deal projects total sales tax revenue of $133.7 over the half-century. Manley’s company will get 57.5%, or nearly $77 million. The city will get 42.5%, or just over $50 million.
Screenshot of texts between developer Dwight Manley (black) and Brea Assistant City Manager Jason Killebrew (blue)
One councilmember described it as “the best deal we could expect.” But text messages between Manley and the city’s point person suggest Brea may not have pushed very hard for a more favorable split.
Critics also suggest that timing — specifically, the city’s decision to accept its share of taxes later in the deal — is problematic.
Over the Brea Costco’s first decade, the developer gets 10 times more money than the city — $23 million for the developer, and $2.3 million for the city’s general fund, according to projections.
By year 20, it pencils out to about $41.5 million for the developer and $9.4 million for the city.
The deal also dedicates 5% to Brea senior programs each year. That’s $6.7 million over the agreement’s life, or $134,000 a year on average.
‘Bad bet by any measure’
Year-by-year detail on split between the developer and the city of Brea for Costco sales tax revenue split
Consumer advocates have long railed against deals like this, which they call “corporate welfare.”
There are almost 200 active tax-sharing agreements in California — 22 in Orange County — though just a handful statewide involve Costcos.
The Southern California News Group asked several municipal finance experts to review Brea’s agreement. They were not enthusiastic.
“I’m skeptical of any contract that lasts for half a century because the people taking credit for it in the short term never seem to be around for the long-term consequences,” said Michael Thom, a professor at USC’s Sol Price School of Public Policy.
“The city’s memorandum lists benefits, such as additional tax revenue, but doesn’t explain the methodology,” he continued. “What about the drop in sales tax revenue from stores that lose customers to Costco?”
The agreement’s half-century term was a concern for Greg LeRoy, executive director of Good Jobs First, a government watchdog group that tracks corporate subsidies. “God knows what retail will look like 10 years from now, never mind 50,” he said. “It’s a volatile landscape, which is another reason not to try to pick winners and losers.”
Andrew Leahey, a professor and attorney at Drexel University’s Thomas R. Klein School of Law, said that what Brea approved is more akin to a 50-year public works expenditure program than a “ ‘gosh it’d be nice to have a Costco on this corner’ deal.”
“The deal is exceedingly front loaded,” Leahey wrote via email. “It takes until year 30 before there is anything like parity between the developer and the city. And by then the developer has banked between 65% and 100% of the benefits across three decades. So, to put it in words, Brea traded near-term complete certainty for long-term speculation. Bad bet by any measure.”
Once you factor in the time-value of money, it gets worse, he said. “The value of a dollar in 2066 is not the same as one in 2026. So even if, somehow, the plan would completely refund the city for any lost revenue in 2066 dollars — it is still a bad deal for Brea today.”
Dwight Manley in 2019. (Photo by Jeff Gritchen, Orange County Register/SCNG)
The argument that “we get nothing in sales tax from the site today, so anything is a win” is a common, but spurious, refrain, Leahey added.
“The counterfactual here isn’t $0 vs. something in 30 years, it’s $0 as against alternative tenants, alternative development, future land use options, or hell even just demanding a better deal from Costco,” he said. “The city bears all the structural risk, locks the site up for current usage patterns for the next 40 years, and bets that Costco won’t downsize, relocate, fall on hard times, etc., before at least 2056, when they start getting some meaningful income.
“So in sum, the developer gets paid now. The city gets paid if everything is still humming along decades from now…. bad deal, not a disaster, not uncommon. Text messages are a horrible look.”
California’s Legislative Analyst is no fan of tax sharing deals, either. “From a statewide standpoint,” the office said in a September report on such agreements, “this redirection of revenues reduces funding for cities.”
Millions for Brea
Manley dismissed the criticism as ivory tower musings from people who don’t understand the real world.
The deal’s structure is dictated by the land’s steep price, and the city is paying zero for it, he said.
“Of course the developer gets the most in the beginning years,” he said. “They are putting up all of the money, up front. Are you saying that someone getting $5.5 million dollars income annually for a property that is worth over 100 million is too much? How much does a home mortgage cost? Seven percent? The path we are on is less lucrative than many others.”
While the length of most tax sharing agreements land in the 10, 20 and 30 year range, the 50-year term of this agreement is dictated by the land cost, Manley said. In texts between Manley and the city’s point person, Assistant City Manager Jason Killebrew, Killebrew suggested it was the longest term allowed by law.
“The only reason there will be any future tax revenue on this site will be due to the huge up front investments myself and the business put forward,” Manley said. “If for some reason things didn’t work out, I and they are the big losers. The city can’t lose what it never had.”
Those who bemoan the corrosive impact of inflation on the city’s delayed cut “don’t understand finance or the time value of money,” he said. Future inflation increases the sales tax revenue, he argued, which benefits the city as its share rises. “That is a simple fact,” he said.
Since redevelopment agencies were phased out, agreements like this help cities get things done, Manley said. “I have personally dealt with the city for nearly 25 years, seen redevelopment come and go, and invested my personal money to know how this works.”
For its part, Brea understands that there are many different viewpoints on the agreement and declined to comment on others’ opinions, said spokesperson Liz Pharis.
But Brea analyzed alternatives to forecast how much different projects would generate in tax revenue, including all-residential development at various densities, she said. The Costco project was superior because it will bring both property and sales taxes to Brea, while all-residential projects would only bring property tax. Under the limits of Proposition 13, residential development can provide modest revenue increases, while the city would have to shoulder the cost of services to all the new residents, she said.
Ball, of the Business Council, said the Costco will also create jobs and workforce opportunities.
The Beckman Coulter campus in the 200 block of South Kramer Boulevard in Brea, CA, on Tuesday, March 10, 2026. The site is slated to become a Costco Wholesale, per the economic development agreement between developer Dwight Manley and the city. (Photo by Jeff Gritchen, Orange County Register/SCNG)
“The average Costco has over 300 employees,” he estimated, “and those are positions of all different types of skill level. So this is going to provide job opportunities for some of our lower skill positions, provide medium skill positions and is going to create some high skill positions.
“I see it as a long term win for Brea,” he added, “and that’s the way I would approach it from a fiscal perspective.”
Now that the agreement is approved, Costco can move forward with an application that the city will evaluate “in the same manner as other similar development projects…. It is anticipated that staff’s recommendation will include conditions of approval to address the project’s responsibility for physical improvements and paying associated impact fees,” Pharis said.
‘Fiscalization of land use’
Tax sharing agreements are not uncommon. The nearly-200 active agreements in California are between cities and retailers, hotels, car dealerships — even Apple, according to data from the California Department of Tax and Fee Administration.
In Orange County, 15 cities have struck 22 different agreements, according to state data. They are Aliso Viejo, Anaheim, Cypress, Garden Grove, Huntington Beach, La Palma, Laguna Hills, Newport Beach, Orange, Placenta, San Juan Capistrano, Santa Ana, Seal Beach, Stanton and Tustin.
Since 1978, when Proposition 13 limited property tax increases, and 2012, when city redevelopment agencies were dissolved, cities throughout California have been scrambling for new sources of revenue. Drexel’s Leahey noted that the dilemma is national, saying that “municipalities all over the country are tripping over themselves to hand out taxpayer money.”
LeRoy, of Good Jobs First, calls this policy problem “the fiscalization of land use.”
“It’s tragic that that distortion causes places like Brea to give away the store,” LeRoy said. “It’s tragic that that distortion enables places to play against each other to get a share of that sales tax revenue.”
It’s also tragic that such incentives do nothing to expand the tax base, he added.
“To the extent that people shop there, they’ll be shopping less in other communities where they would have purchased the same things,” LeRoy said. “When you subsidize retail you’re not growing the pot. You’re not investing in new technology or drawing gold from the earth…. Subsidizing retail is not a high return economic activity.”
Costco, at least, pays its employees better than many other retailers, he said. But the deal, he added, is substitution, not growth. “You’re just moving retail around. We don’t have more dollars to shop with just because we have another place to shop.”